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Europe’s non-performing loans continue to fall in value, but banks expect tighten in property lending

Non-performing loans (NPLs) in Europe remain at a very low level, even with a slight decrease in some segments, despite the growth in lending, the latest Risk Dashboard report of the European Banking Authority (EBA) shows. The data are as at the end of the third quarter of 2023 and show no change of the NPL share and even a decline as in absolute value.

At the end of September 1.8% of all credits were non-performing – the third quarter in a row without change. Their value is EUR 362.7 billion – 1.28% decrease on an annual basis.

In general for the EU and the European Economic Area, credit growth is weak, with bank assets increasing by 0.4% quarter-on-quarter. The tightening of the requirements for obtaining a loan in the EU has not yet led to a decline in lending, the EBA notes. In the third quarter there was even an increase in exposures related to real estate – commercial and residential, but the survey among banks shows that fewer and fewer of them plan to increase their exposures to these segments.

View EN_EBA_Risk Dashboard Q3_2023 on Beautiful.ai

There are also some early signs of deterioration, the EBA notes. NPL inflows are higher than at the start of 2023, more prominently in sectors that are sensitive to economic downturns such as real estate.

At the same time the change in the share of overdue loans related to real estate varied widely. While NPL on real estate exposures are increasing on an annual basis, their share in the construction sector in Europe as a whole is decreasing. There are quite serious differences in development in individual EU countries. In Greece, Ireland and Portugal, the commercial real estate sector reports a high share of NPL, far exceeding that of households, mortgages and real businesses.

The EBA’s inquiry to the banks points to expectations of deterioration in asset quality. Portfolios with corporate loans, small and medium-sized companies, and consumer loans are forecast to be most affected.

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